Correlation Between HP and WisdomTree Mortgage

Can any of the company-specific risk be diversified away by investing in both HP and WisdomTree Mortgage at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining HP and WisdomTree Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HP Inc and WisdomTree Mortgage Plus, you can compare the effects of market volatilities on HP and WisdomTree Mortgage and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in HP with a short position of WisdomTree Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and WisdomTree Mortgage.

Diversification Opportunities for HP and WisdomTree Mortgage

-0.66

Correlation Coefficient

HP  WisdomTree Mortgage

Excellent diversification

The 3 months correlation between HP and WisdomTree is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and WisdomTree Mortgage Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Mortgage Plus and HP is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on HP Inc are associated (or correlated) with WisdomTree Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Mortgage Plus has no effect on the direction of HP i.e., HP and WisdomTree Mortgage go up and down completely randomly.

Pair Corralation between HP and WisdomTree Mortgage

Considering the 90-day investment horizon HP Inc is expected to generate 5.49 times more return on investment than WisdomTree Mortgage. However, HP is 5.49 times more volatile than WisdomTree Mortgage Plus. It trades about 0.05 of its potential returns per unit of risk. WisdomTree Mortgage Plus is currently generating about -0.07 per unit of risk. If you would invest  3,310  in HP Inc on September 12, 2024 and sell it today you would earn a total of  184.00  from holding HP Inc or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

HP Inc  vs.  WisdomTree Mortgage Plus

HP Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HP Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, HP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Mortgage Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Mortgage Plus has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, WisdomTree Mortgage is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with HP and WisdomTree Mortgage

The main advantage of trading using opposite HP and WisdomTree Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, WisdomTree Mortgage can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in WisdomTree Mortgage will offset losses from the drop in WisdomTree Mortgage's long position.

The idea behind HP Inc and WisdomTree Mortgage Plus pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.